Governor Rick Perry's newest appointee may have broken the deadlock at the Public Utility Commission of Texas, but rigging the electricity marketplace to benefit large generators won't happen without drawing blood.
At a PUC meeting late last month, Commissioners Donna Nelson and Brandy Marty each signaled their intention to set a mandatory level of surplus power generation to avert blackouts. How the state enforces the so-called "mandatory reserve margin" in an ostensibly free market wasn't explained. But a Barclays financial analyst predicted it will lead inexorably to what's known as a capacity market. That means ratepayers would end up paying generators to build new power plants on top of the checks we write each month for the electric bill. If that doesn't sound like a free market, that's because it isn't.
As the logic goes, this is vital to electric reliability and a competitive Texas future. It only makes sense, however, if you buy the narrative that places Texas inside a flickering future in which blackouts are commonplace. Commissioner Ken Anderson, now the odd man out on the PUC, has warned repeatedly that the apocalyptic assumptions the industry and his colleagues are operating under may be completely false. Far from guaranteeing electric reliability, Anderson has referred to a capacity market as "corporate welfare."
Problem is, it's all being justified by reports with bad numbers. Grid-operator ERCOT's annual predictions routinely overestimate how much electricity we'll use and underestimate how much we'll actually have available. According to a Texas Public Policy Foundation analysis, between 2007 and 2013, ERCOT's forecasts overestimated demand nearly 90 percent of the time. This should be cause for caution before re-regulating the $29 billion Texas electric market to the tune of an extra $2 to $5 billion per year, courtesy of ratepayers.
ERCOT itself announced Wednesday that it would delay the release of the annual report that has in recent years flamed fears of electricity shortages. The grid operator said it will wait until the PUC has had a chance to review the new methodologies it's developing. It hopes to present a more accurate accounting of just how much electric capacity Texas actually needs.
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State Senator Troy Fraser, chairman of the Committee on Natural Resources, advised the PUC last week to slow down and know its place. "Never was it intended for the PUC to possess the statutory authority to change the fundamental design of the market."
This session, the Texas House passed a measure that would require the PUC to conduct a cost-benefit analysis for any change to the electric market that would cost ratepayers $100 million or more. You'd think such a study would be a no-brainer, a demonstration that those in charge intend to be good stewards of our money. Fraser offered up a similar, though water-down bill, that pegged the threshold amount at an even billion dollars. There must not have been much appetite for it, because Fraser withdrew the measure. It's easy to see why. The power-generation industry was four of the top five lobbying clients this session, spending some $6.2 million on lobbyists.
The industry desperately wants a capacity market, and not without reason. Natural gas is cheap, setting low electricity prices ever since the shale boom began in 2008. It's hurting all generators, some more than others (like Dallas-based Energy Future Holdings, currently in pre-bankruptcy negotiations). It's why they say the market doesn't support investment in new power plants. So, the logic goes, if Texas creates a capacity market, generators will put steel in the ground and the threat of blackouts vanishes. There's a beauty to their reasoning, and absolutely no reason to expect that they won't pocket the money and bring dirty old mothballed units back online.
Keep in mind, this was the same crowd that warned against intervention in the free market during the salad days, before fracking changed everything. Now they're asking for a bailout, for a change in the rules that no longer serve them. They may get their way in the end, but not before there's one hell of an ugly fight.